Legal challenges to student loan forgiveness loom before midterms

A student loan would obviate the need to disturb your own investment portfolio and help preserve your financial goals, including retirement plans. Photo: ThinkStock
A student loan would obviate the need to disturb your own investment portfolio and help preserve your financial goals, including retirement plans. Photo: ThinkStock


GOP lawmakers and conservative groups are laying the groundwork for court battles to block Biden’s executive action

The Biden administration and Republican opponents of mass student debt cancellation appear headed for a legal confrontation with hundreds of billions of dollars at stake just weeks before the November midterm elections.

GOP state attorneys general, conservative groups and federal lawmakers are laying the groundwork to challenge President Biden’s executive action to cancel up to $20,000 of debt for most of the 40 million people with federal student loan debt. Would-be plaintiffs can’t take action until the administration makes a formal move toward cancellation, such as releasing an application for loan forgiveness or wiping out the balances of a first batch of borrowers.

The Education Department has said it would unveil an application for borrowers to register their income and Pell Grant status, two factors that determine relief eligibility, by early October. At that point, the department could move ahead with canceling the debt of nearly eight million borrowers whose relevant income data is already available to the department. Republican legal challenges are expected to start then, and legal experts say it is possible that the administration’s plan could be frozen by a federal judge within days.

That could throw the financial future of tens of millions of potential voters into uncertainty just weeks before Election Day on Nov. 8. and provide a real-world test of student debt’s potency as a political issue.

Democrats say that a legal battle weeks before the midterms could further motivate voters to turn out and back their party in November, in the hopes that Democratic wins would help protect the program. Republicans say that many voters oppose the debt plan and that even among its supporters, the strategy could backfire if a judge effectively blocks the program, leaving voters feeling that Mr. Biden’s action was an empty promise.

“The administration doesn’t have the authority to do what they are doing," said North Carolina Sen. Richard Burr, the top Republican on the Senate Health and Education committee. He suggested that the administration was intentionally setting up a high-profile political and legal clash just before the election for political benefit. “The only reason it got announced was for that."

The administration, which says it has the legal authority to pursue mass debt cancellation under emergency powers invoked during the pandemic, says it is ready for a legal battle.

“We’re acting on our authority and we believe that we have not only the right, but the responsibility to make sure Americans are not worse off after the pandemic than before it," Education Secretary Miguel Cardona told reporters earlier this month. A White House spokesperson didn’t respond to requests for comment on the political ramifications of a possible October legal fight.

Democratic supporters of debt cancellation concede that a legal challenge could succeed, especially if it reaches a conservative-leaning Supreme Court. After the Court’s decision to overturn abortion rights protections, a legal defeat there might have the effect of further galvanizing Democratic voters, some lawmakers say.

“With an extremist Supreme Court and Trump nominees throughout the judiciary, it’s clear that rule of law no longer controls every opinion," said Sen. Elizabeth Warren (D., Mass.). Republicans “will take their case to court because, like it is with abortion, they know that can’t win with the public generally."

A Fox News poll conducted Sept. 9-12 found that 54% of voters approved of canceling up to $20,000 in federal student loan debt, with 43% disapproving. Supporters included 79% of Democrats, 51% of independents, and 30% of Republicans.

Following more than a year of internal debate, Mr. Biden decided to cancel some debt for borrowers making less than $125,000 a year because he was convinced that “an entire generation is now saddled with unsustainable debt," he said in announcing the program this past month.

Along with canceling a lump sum of debt, the Education Department is now at work on a regulation that would revamp income-driven repayment plans, ensuring that enrolled borrowers only pay 5% of their discretionary income each month to keep current on their loans, among other changes.

Republicans have taken aim at the debt cancellation element in particular, calling it an unfair wealth transfer from taxpayers to educated borrowers who made a choice to finance their education with federal loans.

“This is closer to theft than to forgiveness," said Mark Brnovich, the Republican attorney general of Arizona.

Among the parties working on potential lawsuits are the Job Creators Network, a conservative group, and several state attorneys general, including Mr. Brnovich. JCN President Alfredo Ortiz said his group was “evaluating our options" since “litigation cannot commence until the administration takes official action."

Biden administration attorneys have said the Higher Education Relief Opportunities for Students Act gives the education secretary sweeping authority to cancel student loans to address financial hardship arising out of the Covid-19 pandemic.

The 2003 federal statute known as the HEROES Act gives the head of the Education Department the capability to waive or modify federal student-loan provisions during war or a national emergency. The administration has argued in legal memos that the pandemic is a national emergency that made it harder for student borrowers to pay back their loans.

Republican critics of the program and a number of legal scholars who have studied the law have expressed doubts that Congress ever gave the executive branch such blanket authority to cancel loans on such a vast scale.

Under the Constitution’s standing requirements, plaintiffs would have to first show that they have suffered a concrete injury as a result of the administration’s actions. It is unclear if any plaintiff would be able to establish such direct harm.

“How do you get the issue before a federal judge? I have heard a number of creative ways of doing that," said Sen. John Kennedy (R., La.) “Will they succeed? I don’t know."

If a court does rule that Mr. Biden’s action was unconstitutional, “it will create quite a mess" trying to return borrowers to repayment, Mr. Kennedy said.

In discussing potential legal actions, state attorneys general have looked at the loan forgiveness program’s impact on public university enrollment and on state employee recruitment programs that offer tuition discounts.

Another question is whether courts would restore debts once they are formally forgiven.In the eyes of the law, the borrowers themselves would be innocent bystanders in the litigation protected by due process, says Eugene Kontorovich, a professor at George Mason University’s Antonin Scalia Law School.

“Giving back the money wouldn’t fix the president’s constitutional violation," said Mr. Kontorovich. The student borrowers benefiting from Mr. Biden’s program “aren’t responsible for the government acting unconstitutionally."

Mr. Brnovich, the Arizona attorney general, said that clawing back relief that had already been credited to borrowers’ accounts would be difficult and that the focus of litigation would be on preventing cancellation from happening in the first place, or stopping it as quickly as possible once it begins.

“Once the money goes out the door, it’s going to be tough to get it back," Mr. Brnovich said. “You would now have people relying on it, and some would claim they are entitled to it."


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